Am I Too Bearish

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Includes: SH
by: Erik Conley
Summary

I'm 65% invested in equities and other risk assets, and 35% in cash, bonds, CDs, T-Bills, and the like.

I'm also slowly building a short position on the S&P 500 Index via the ETF SH.

My view is to treat this rally to new highs as a selling opportunity.

In a word... no. I'm agnostic about where the market is headed next. I rely on my models of the market and the economy to inform my forecasts. I don't care which political party is in power, or what the geopolitical risks are. I only care about corporate earnings growth, dividend growth, and P/E growth, period.

My Position

I'm 65% invested in equities and other risk assets, and 35% in cash, bonds, CDs, T-Bills, and the like. I'm also slowly building a short position on the S&P 500 Index via the ETF SH.

Currently I have about 10% of my portfolio in SH. As the market continues to rise and make new highs, I will add to my SH position. My models tell me that we are getting close to the top of this historic bull market, and I don't want to be caught flat-footed when it happens.

What is Making Me So Cautious

A few things. First is valuations, which are stretched by most measures. P/E, P/Book, ROI, and the like.

Second, the global economy is showing signs of slowing down, and the U.S. is not immune. Why do you think that the Fed is signalling a cut in rates? They believe that the economy is weakening.

Third, corporate earnings have been less than stellar so far. It's earnings growth that drives the market higher, and I don't see evidence of it.

What's an investor to do?

My view is to treat this rally to new highs as a selling opportunity. There's an old saying on equity trading desks that says "You gotta feed the fish when they're barking." Translated into English this means that smart traders and investors will be sellers when the market becomes overvalued, as it is now.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.